• New Double Tax Treaty between China and France
  • February 14, 2014
  • Law Firm: Jones Day - Cleveland Office
  • On 26 November 2013, China and France entered into a new double tax treaty (Treaty). The Treaty, which is the result of five years of negotiation, incorporates most of the OECD standard provisions:

    • Article 4 provides detailed rules, including six illustrative sets of facts (which are similar to those provided for in the double tax treaty entered into between the UK and France), to address qualification and residence issues involving flow-through partnerships (but excluding investment funds);
    • Article 10 provides for a reduced 5% withholding tax rate in favor of dividends distributed in respect of 25% or more shareholdings;
    • Articles 10, 11, and 12 provide for specific anti-avoidance provisions with respect to dividends, interest, and royalties pursuant to which the Treaty benefits should not be extended in cases where the main purpose or one of the main purposes is to take advantage of the Treaty; and
    • Article 24 furthermore provides for a general anti-treaty shopping provision, pursuant to which the Treaty benefits should not be available where (i) certain transactions or arrangements would be mainly aimed to secure a more favorable tax position, and (ii) obtaining such more favorable tax treatment would be contrary to the object and purpose of the relevant Treaty Articles.

    The Treaty will come into force as from January 1 of the year following its enactment by both China and France. Existing structures may consequently have to be reviewed in order to account for the new provisions of the Treaty, and in particular its anti-abuse backbone.